LONDON- European shares were mixed on Tuesday after company earnings reports, and the dollar's rebound stalled as investors waited for talks about government aid in the United States to make progress.

Strong U.S. manufacturing data boosted sentiment through the Asian session, even as Sino-U.S. relations took a turn for the worst. 

After a rally on Monday, European shares opened higher but quickly slipped into the red, with the pan-European STOXX 600 down 0.3% and London's FTSE 100 flat on the day by 1034 GMT.

Disappointing earnings reports from the world's largest spirits maker, Diageo Plc, and German drugs and pesticides group Bayer took the shine off growth-linked cyclical stocks. 

Shares in BP jumped after it cut its dividend and posted a record loss that was in line with expectations. 

The MSCI world equity index, which tracks shares in 49 countries, was up 0.4% after reaching a five-month high just after 0700 GMT. MSCI's main European Index was up 0.1%.

U.S.-China tensions worsened as President Donald Trump said that he will ban Chinese app TikTok in the U.S. unless a tech company such as Microsoft buys it. 

The move provoked an outcry on Chinese social media and criticism from a prominent Chinese investor in TikTok's owner, ByteDance. 

China said it would not accept the "theft" of a Chinese company and that is has "plenty of ways to respond if the administration carries out its planned smash and grab". 

"This kind of rhetoric lines up with our view that U.S.-China frictions may increase into the U.S. elections, injecting volatility into related assets like China tech ADRs (American Depository Receipts) while also supporting insurance assets like gold," wrote UBS Global Wealth Management's chief investment officer, Mark Haefele. The United States and China are also clashing over Chinese journalists working in the United States, who may be forced to leave the country if their visas are not extended. 

The rebound in the dollar faltered, with investors still waiting for Washington to make progress in talks over the next round of fiscal stimulus.

A $600-per-week enhanced unemployment benefit, which provided a lifeline for the tens of millions of Americans who lost their jobs due to the pandemic, expired on Friday. 

Lawmakers said they had made progress in the talks, and U.S. House Speaker Nancy Pelosi will meet again with Treasury Secretary Steven Mnuchin and White House Chief of Staff Mark Meadows on Tuesday, raising hopes for a breakthrough. 

"A second wave of Covid-19, contested elections, civil unrest and escalating tensions with China could provide a toxic cocktail for the final quarter of the year," Philip Marey, senior U.S. strategist at Rabobank, wrote in the bank's monthly outlook.

Marey said that he expects another economic contraction, or at least a "substantial slowdown" in the fourth quarter, which could force the Federal Reserve into action.

"If they don’t want to cut policy rates below zero, yield curve control is the next logical step," he said. "Meanwhile, any failure by Congress and the White House to provide sufficient fiscal stimulus going forward will only speed up the Fed’s thinking process."

The dollar index was flat on the day at 93.532. The euro rose 0.1% against the dollar, to $1.17720.

Ten-year German bond yields edged down to -0.5400, but remained above the two-month lows reached at the end of last week.

Spot gold edged down from all-time highs, at $1,974.3033 per ounce, amid mounting COVID-19 cases and a warning from the World Health Organization that the road to normality would be long. 

Oil prices slipped on fears that a new wave of COVID-19 infections could curtail a pick-up in fuel demand, just as major producers ramp up output. 

U.S. West Texas Intermediate (WTI) crude futures fell 59 cents, or 1.44% to $40.42 a barrel at 1057 GMT. Brent crude futures fell 59 cents, or 1.3% to $43.56 a barrel.

(Reporting by Elizabeth Howcroft, editing by Larry King) ((Elizabeth.Howcroft@thomsonreuters.com; +44 02075427104;))